I was flabbergasted when I saw that the Senate voted down the re-authorization of the Export-Import Bank of the US so I had to post something. This kind of political stunt really reflects some politicians’ total ignorance of not only the ingredients of job creation and economic growth for America, but the fundamental equations of international political economy, and if I may add, global geopolitical competition. Ex-Im only provides assistance in the form of loan guarantees or small loans when there is a market failure – commercial banks unwilling to lend to companies that want to invest in “risky” overseas environments, and when foreign governments or entities want to buy US manufactured equipments (which is more prevalent than you can imagine). They have a net positive return for the government – revenue for Uncle Sam is bigger than their outstanding loans (So the “government spending” argument is a complete farce). They generated about 300,000 jobs for 2,600 companies (vast majority of them SMEs) in the US in 2011 alone.
Ok so we can forget about the few hundred thousand jobs it creates. More fundamentally, why is Ex-Im important for the US from an international perspective? Almost every other country has an equivalent – even tiny Ghana has its export financing agency. Just to illustrate, the equivalents in China – China Development and China Export-Import Banks’ total loan portfolio around the world in 2009 and 2010 totaled $110 billion, which is bigger than the development assistance portfolio of the entire World Bank group, and the $50 billion 0r so portfolio for Ex-Im for the same period. It really shows how Ex-Im is lifting almost the entire weight of America in “competing” with these Chinese state owned banks in their quests to conquer every remote corner of the world.
So basically without Ex-Im bank of the US, it is hard for me to see how the US is actually relevant in many parts of the world! US already devotes only 0.15% of its GDP to foreign assistance, compared to 0.7% for other OECD countries, but foreign assistance (USAID, military assistance etc) itself is fraught with challenges, its effectiveness the topic of perennial debates, and most importantly, is not really visible in many areas of the world (A huge chunk of our foreign assistance goes to Afghanistan, Iraq, Israel, Egypt and Pakistan). But unlike foreign assistance that takes care of basic health/education/disease/death prevention, Ex-Im’s support is really manifested in forging sustained economic partnerships as it reaches small businesses and middle class consumers. So Ex-Im is even more crucial for places like Africa – just to make sure the US has a flag in these countries, and a place at the table with dozens of other donors. But that’s the topic for another discussion.
But the more basic question I want to ask every American business owner and investor is, do you think you have the wherewithal to inject hundreds of millions of risk capital into some random African country where you don’t even know if the currency is convertible and if the government will seize your assets? Not just your business, but do you think some American bank would lend you a billion dollars to do business in Guinea or Burkina Faso?? How do they navigate the complicated terrain of securing a deal with foreign contractors, and in most cases, get the approval of some hostile or low capacity foreign government? Even if businesses know there are good opportunities in more tame places like Ghana, how do you know which companies to partner with?? Of course fraud is rampant everywhere in the developing world.
Politicians have to realize that without entities like Ex-Im and OPIC (Overseas Private Investment Corporation), which provides political insurance and project financing, there will be NO, NADA, small and medium American enterprises exporting to the vast majority of developing countries!! And furthermore, there will be no foreign buyers of American manufactured goods from small and medium sized companies. They will buy literally EVERYTHING from China (of course that’s because Chinese exports are supported by their state-owned banks), and consumers not just in America, but around the world, will only know the Chinese brand. What happened to all the complaints about Americans importing too much and exporting too little? For some reason, people only think about the problem – buying too much cheap Chinese goods, and not about the solution, which is on the export side.
In Ghana for instance, Ex-Im is providing loan guarantees for the Ghanaian government to buy power equipments such as substations and transformers for rural electrification. Not only has the medium sized American company boomed during the recession and provided thousands of jobs in the US (and tens of thousands of jobs for impoverished regions of Ghana), it is in the process of electrifying 1,400 villages. The multiplier effect of those infrastructure projects supported by Ex-Im in not so remote, but often forgotten corners of the world cannot be emphasized.
True, any federal agency – including Ex-Im could use some reform to make it even more lean, stronger and effective. And some of the loans it has approved in the past may not have provided the best returns. But don’t confuse reforming some inefficiencies with the existence of entities that define the role of America in the world. Of course slashing every program that has no domestic constituency lobbying for their existence makes for good political fodder. I think it’s time for some politicians and think-tank people to go back to school to study basic international affairs and economics.